Question

"Greece and the US are facing somewhat comparable economic problems (although on a different scale) where heavy government borrowing and high government spending have built up debt to a level where it may not be repaid. Do today's economic problems in Greece and the US seem to stem from Keynesian thinking or Hayekian thinking? Justify your answer in some way."

Answer 1

I guess no one knows a good answer to this

Answer 2

I know that Greeks don't even think

Answer 3

Well, borrowing governments and public spending are more from Keynes thinking. The over-exploitation of these tools do not stem from any economic theory, but actually Hayek, as a founder of liberalism, couldn't even accept the massive intromission of governments in the overall economic dynamics.

Answer 4

Keynesian thinking (economics) believes more in government spending. For example, in the case of unemployment Keynesian economics believes in higher government borrowing in order to increase demand. Because of the Great Depression, Keynes believed in deficit spending and as the authors Roubini and Mihm point out Keynes maintained that "...balancing the budget could wait until after the crisis passed."

Furthermore, these same authors also point out that "Economists of a Keynesian bent tend to...pointing out that the United States ran enormous deficits during the New Deal and World War II and managed to pay them off without a problem."

Therefore, one can see that Keynesian thinking is involved here with higher government spending and a rising deficit.

As a side note to government deficits the Ricardian equivalence states "...that government deficits have little real economic effect because private citizens anticipate the fact that any borrowing now has to be repaid later and thus increase their saving with that in mind."

It seems like there are two schools of thought in justifying deficit spending.